On May 28, the tenth Majlis is to be sworn in with a reform and moderate plurality for the first time. International sanctions have been formally lifted as of January 2016, in keeping with the P5+1 deal, restricting Iran’s ability to build a nuclear weapon over the next decade or two. Overall Iranian oil production in April reached 3.6 million barrels per day, nearly reaching pre-sanctions levels, with 2 million barrels exported. And on May 23, Indian Prime Minister Narendra Modi and Afghan President Ashraf Ghani met with President Hassan Rouhani in Tehran to ink a trilateral development deal, to build the Chabahar port on the Gulf of Oman, which will open new trade routes to India, Central Asia, Russia, and Europe.
Despite all of these positive developments, the internal situation facing the moderates in power is, however, far more problematic, as the result of a combination of internal and external factors that the Rouhani camp has very little leverage to change.
Internally, the Iranian “deep state,” comprised of the Iranian Revolutionary Guard Corps (IRGC), hard-line clerics (the Combatant Clergy), and the judiciary, remains deeply entrenched in power—in the economy, in the banking system, and at the top of the political power structure, where Supreme Leader Ayatollah Khamenei is a generally reliable ally. This apparatus, particularly the IRGC, has continued to maintain a vice grip control over much of the Islamic Republic’s physical economy and banking system. They jealously defend that power, and are therefore opposed to some of those foreign direct investments that are vitally needed if Iran is to see genuine growth. In a sign of their continuing clout, a recent joint venture construction deal with France was given to a company known to be controlled by the IRGC.
The behind-the-scenes power of the “deep state” was made evident last week, when Ayatollah Ahmad Jannati, the 90-year old head of the Guardian Council, was elected to Chairman of the Assembly of Experts, the body that will choose the next Supreme Leader, when the ailing 77-year old Supreme Leader Khamenei dies or is forced to step down by infirmity. Jannati got 55 out of 88 votes to win the chairmanship. As head of the Guardian Council, he had presided over the purging of the electoral slates, which blocked many of the most outspoken reformers and moderates from running in the recent Majlis and Assembly elections. After winning the powerful post of Chairman of the Assembly of Experts, Ayatollah Jannati delivered a speech demanding unswerving loyalty to the Supreme Leader, a not-so-veiled threat to reformists.
The next test of power will come soon, when the new Majlis is sworn in and must elect its Speaker, along with two deputy speakers, six secretaries and three observers. The two candidates for Speaker are moderate reformer Mohammed Reza Aref and the current Speaker, traditional conservative Ali Larijani. Although Larijani is far more conservative than Aref, both men supported the P5+1 deal, and therefore it is expected that a behind-the-scenes deal will be reached for the next Speaker, rather than go through a publicly contentious vote. Ali Akbar Nategh-Nuri, a former Majlis Speaker and Interior Minister, is widely expected to broker the negotiations between the two camps. Ali Hashemi Rafsanjani has signaled his support for Larijani in the upcoming vote, on the grounds that Larijani will be more skilled at fending off the most hard-line conservatives.
In another sign of the still powerful hardline-IRGC faction, Iran successfully launched a new-generation missile with a range of 2,000 kilometers this month. The launch was followed by a statement by Ahmad Karimpour, a well-known adviser to the Al Quds Brigade of the IRGC, which runs all overseas operations. He boasted that, with the missile breakthrough, Iran could wipe out Israel within eight minutes. Such statements are a further deterrent to foreign investors.
Although sanctions related to Iran’s nuclear weapons program were lifted as of January 1, under the P5+1 agreement, the United States maintains a wide range of other sanctions, both primary and secondary, centered on Iran’s classification as a state sponsor of terrorism. A long list of IRGC officials and business entities is still under strong Washington sanctions, and, as the result, European and other foreign banks are hesitant to engage in any investments or joint ventures with Iranian companies with documented ties to the IRGC sanctions list. Under the US sanctions and the enforcement provisions of the Treasury Department’s Office of Foreign Assets Control (OFAC), foreign firms are responsible for due diligence to keep in line with the US restrictions.
Ayatollah Khamenei issued a statement recently condemning these US actions of the US, declaring that “on paper, the US allows foreign banks to deal with Iran, but in practice they create Iranophobia so no one does business with Iran.”
Given the tight grip that the IRGC maintains over the construction, energy, and banking sectors of the Iranian economy, Khamenei was not far off in accusing the United States of standing in the way of Iran fully realizing the economic benefits of the P5+1 deal. President Rouhani, who is likely to seek re-election next year, has good reason to worry that the US actions, blocking a full flow of foreign investment could gravely damage his popularity. Former hard-line president Mahmoud Ahmadinejad has recently floated the idea that he could seek re-election in 2017, and while even his former backers do not take this seriously, it is a clear indication that the support for Rouhani is slipping due to what many see as a double-cross by Washington, and the lack of serious economic benefit from the years of diplomacy on the nuclear issue.
This dilemma was underscored on April 20, when the United States Supreme Court issued a ruling that Iran must pay $2 billion to family members of the more than 300 Americans killed in the 1983 Beirut Marine barracks bombing. Iran is one of the few countries exempted by the US from protection under the 1976 Foreign Sovereign Immunity Act.
The outcry against the Supreme Court action was universal in the Iranian capital. President Rouhani called it “blatant theft,” and Foreign Minister Zarif called it “highway robbery”. Days after the Court ruling, the Majlis, by an overwhelming 174-7 vote, called for Iran to seek damages from the United States for 63 years of “hostile actions and crimes” carried out, starting with the 1953 Anglo-American coup that overthrew Prime Minister Mossadegh. The bill must be approved by the Guardian Council.
In effect, any country seeking to engage in dollar-denominated trade with Iran is going to have to face pressure from the United States, based on the still-active sanctions, which bar any foreign companies from engaging in business with the sanctioned Iranian individuals and entities.
On the eve of the Modi visit to Iran, India did manage to make a $750 million payment to Iran, as part of a $6.5 billion debt accrued through oil purchases during the period of the UN sanctions. The Indians worked out an arrangement with a Turkish bank, Halkbank, which maintains accounts for the National Iranian Oil Company, under which dollars were converted to euros to make the payment. But there are so far only three European banks, in addition to Halkbank, who have indicated a willingness to make the dollar-to-euro transfers to make payments to Iran: Danske Bank of Denmark, Europaeisch-Iranische Handelsbank of Germany, and the Central Bank of Italy.